00:23:14 · Mikk, Greg Geronemus
[00:23:14] S0: Okay. Can you walk us through the final purchase price and deal structure overall? How were you able to put it [00:23:21] S1: in Yeah. The So the accountant really anchored everything about the deal, but that's not exactly where the deal landed. So you know, the deal ended up, it was a $29,000,000 purchase price, a little bit high. I think the accountant had said 26 or something. So he worked us up a little bit. The seller note, instead of 60% of the transaction value, was down to 50%, which is still a monster $14,500,000 seller note. The way that we financed it, so he financed 14.5, we were responsible for getting another 14.5 plus 500 ks or so of fees. We raised some third party bank debt, which was senior to his seller note of 5,000,000 from a group called Tamarex, which became OFS. And the guys who worked with spun out and became RF Partners. And RF, I'll give a plug for them. They're a great partner to ETA and lower middle market acquirers. And then we raised 10,000,000 of equity from not only from our existing... Our original Search Capital investor group, but also we went... We we had a gap, and so we needed to go beyond our group and brought in a bunch of folks that weren't part of the original search. [00:24:56] S0: Okay. Now the deal deal is done after this busy busy year. Now tell us about the the first hundred days and how much during this one year period, like before close, you actually learned about the business and now going smoothly to actually now operating it? So how was the first hundred days for you and David?
00:25:20 · Greg Geronemus
[00:25:20] S1: We learned a lot over that year, but I think it's important to keep in mind that neither of us had any operating experience. I was only a handful of years out of college, including my two years of business school. I had very little professional experience, period. Dave a little bit more than I did, but not a whole heck of a lot. None of his experience was on the operating side. We did not know what we were doing. The one thing that we did know was that there was enormous key person risk. I I described the nature of the team. It was Ellie, the seller, plus six people. He had his hands in everything. And so we needed to not only... We we knew that we needed to absorb as much from him as we possibly could. So we we didn't really do much over the first hundred days or the first hundred and eighty days other than just kinda be a fly on the wall and learn from him. You know, I remember... I felt like a journalist just taking notes, just furiously taking notes on what he was doing, listening in on calls. We weren't hiding, were still part of the calls, but doing a whole lot more listening than talking, realizing that we only had him, we had a nine to twelve month transition period arranged, and we only had so much time with him, and we needed to learn as much as we could. So we didn't touch much, we actually do much. You know, there were some post close items and we had to get the financial reporting in order, but for the most part it was learn the business, get to know the team, learn from the seller. And the good news is, we felt empowered to do that because we had bought the business pretty well. So, you know, one of the luxuries of a low entry multiple and a well structured deal with this big seller note, big cheap seller note, is that we didn't feel like, oh my gosh, we gotta get in there right away. We gotta, you know, grow the heck out of the business. We felt if we're flat for a year, if we're flat for two years, this business is gonna throw off so much cash. We're gonna aggressively delever, create equity value by delevering, but also just derisk the business given that it's inherently cyclical, that we're gonna be creating meaningful equity value even if we kinda preserve the status quo. So that was very much the lens that we went into for the first year.
00:28:17 · Greg Geronemus, Mikk
Started doing some tests here and there on some marketing marketing ideas that we had, none of which worked. But for the most part, it was really learning. Don't screw things up. Preserve the status quo. And, you know, I I think we... Again, we... I think we would have had a very different mindset if we had paid 10 times and, you know, without sort of the favorable capital structure. I think we would have taken a different posture. And I'm glad that we had the ability to sort of approach it with a degree of calm and thoughtfulness that we that we did. [00:29:00] S0: What was your experience with David with all the employees? Yes. There were only five, six people. But how they wrecked for two 20 year old CEOs taking over the firm running the day to day.
00:29:13 · Greg Geronemus
[00:29:13] S1: I I think they were I think they were absolutely shocked. I know they were absolutely shocked, especially because none of them knew about the deal until two of the six people found out the night before, and they found out the night before. We got to meet them the night before. There was a condition of closing that, you know, we got to meet them. I would advise any any searcher or ETA entrepreneur to push much harder than we did to meet at least some members of the team earlier on. That was a that was a risky game that we were playing. You know, we had we had... We were deep into our spend on legal diligence, our QOV, and, you know, those... If we had gotten a really negative vibe or negative reaction from the two people we met the night before closing, we were probably too pregnant by that point anyway. We probably would have just gone ahead and, you know, delivered the baby, so to speak. But I I it was a risky game, and I would I would recommend that anybody, push much harder. I think that was a bit of our inexperience. And and also the sense that we had that we were sitting on a really well... Like, really attractive deal, and we didn't wanna mess it up. But the team, you know, the... I think they were shocked. They were skeptical as they should have been. Not only were we incredibly young, but we had zero operating experience, zero travel experience. But the benefit of a really small team was that we were able to go to lunch with each of them, sit down with them, allow them... And really talk through. It didn't take us long to work through the whole team. We got through the whole team in less than two weeks. And spending the time approaching them with humility and willingness and an eagerness to learn, I think went a long way.
00:31:27 · Mikk, Greg Geronemus
[00:31:27] S0: Now let's talk a little bit about you going from being this journalist in in the first year and then becoming an operator. And I I I wanna talk about this because we just had this part one episode done with you as well where you said you're, if I remember correctly, one of the most active, like, in a way operationally, a fund backing those independent sponsors. So what it means to you, like, being an operator, one from the lens of your own experience and maybe bringing all this to today, to summer twenty twenty six. [00:32:08] S1: Yeah. Mean, I think I really do continue to believe in sort of go slow before you go fast. And I wouldn't change... I would change a bunch of decisions that we made, and I'll I'll get back to that in a second. But one thing I wouldn't change was this sort of slow, deliberate learning early on, especially because of the magnitude of the key key person risk. The people that we inherited on the team were great, but there was... But they were... It was woefully understaffed. I mean, wildly understaffed. And there was so much still wrapped up in the seller. We we needed to take our time. And, you know, if if we didn't soak up a lot of information, if if he left in a in a hurry, now I think we were confident he wouldn't do that because of the size of the seller note. But if if things went poorly with that transition and there was... It would have been a disaster. And so the the combination of the... This sort [00:33:23] S0: of
00:33:23 · Mikk, Greg Geronemus
[00:33:23] S0: of [00:33:23] S1: profound key person risk and a well structured deal, I think we did absolutely the right thing in year one. Now, I don't think we've invested in a business since that has had the degree of the key person risk that that smarTours had. And I think when, you know, when there's more of an established team, established processes, established systems, you can move a little bit faster. But I think still erring on the side of going slow before you go fast really never hurt anybody. Now sometimes you don't have the luxury of that. You know, you... Sometimes there's... You you inherit a crisis. You know, when you when you buy a business, that's often a tremendous shock to the system. And sometimes people, you know, employees flee or customers leave or... And you don't have the time of just sort of being a journalist and jotting down notes. Thankfully, things were pretty calm, and so we had that luxury. But, you know, that's... From time to time, and and and frankly, you know, more often than I think people appreciate, there's a lot of commotion and and in some cases, chaos caused by the transition from a experienced sort of retiring owner operator to a younger ETA entrepreneur. And you're sort of thrust into, you know, managing through some difficult stuff, you can't just sort of sit back and learn as much as you'd like to. [00:35:15] S0: So this owner stayed for a year, right? [00:35:21] S1: Yeah. A little under a year in the end.